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Nonprofit Revitalization Act Signals Major Overhaul

Nonprofit leaders are applauding the recent passage of the Nonprofit Revitalization Act, which represents the first major overhaul of New York state’s charities laws in more than four decades.

The bill is the product of more than two years of work by the Attorney General’s office, and a year of legislative deliberation and negotiation, none of which included members of the state’s historical community.

The legislation, authored by Attorney General Eric Schneiderman, is expected to enact substantial reforms to cut red tape and enhance governance and oversight of nonprofit organizations. The bill overwhelmingly passed both houses of the Legislature in June. It has since been returned to the Assembly and is awaiting Cuomo’s signature.

Shortly after taking office, Attorney General Schneiderman convened a Leadership Committee on Nonprofit Revitalization, a group consisting of 32 leaders of nonprofit organizations large and small from across the state. Last year, the Committee issued a comprehensive report to the Attorney General that included 38 concrete recommendations to revitalize and renew New York’s nonprofit sector. A copy of the Leadership Committee’s report is available here.

“After 40 years, it is exciting to see that Attorney General Schneiderman, the Legislature and Governor Andrew Cuomo have modernized the oversight system for nonprofit governance,” Brooks said in a statement issued to the press. “The Nonprofit Revitalization Act will serve to strengthen the entire nonprofit sector not only through streamlined and modernized processes, but through a heightened focus on effective and accountable governance.”

The goals of the Nonprofit Revitalization Act include reducing outdated and unnecessary burdens on nonprofits and expediting the application process, improving both transparency and governance in the name of improving public trust in charities,” according to Hannah Hanford, executive director of the Adirondack Health Foundation. “The Board of Trustees of the Adirondack Health Foundation believes strongly that charitable boards take their oversight role seriously because a nonprofit’s integrity is its most important asset. This new law reflects their philosophy and practice while it recognizes modern communication methods to streamline board e-communications to allow business to be accomplished in a timely manner.”

According to Schneiderman’s office nonprofit organizations operating in New York generate hundreds of billions of dollars in annual revenue – the highest of any state in the nation – and are responsible for one in seven jobs in New York State.

According to a press release issued by ACT, the Nonprofit Revitalization Act enhances nonprofit governance and oversight to prevent fraud and improve public trust by:

– Ensuring sound financial management by requiring that charities’ boards perform active oversight over financial audits. Boards will be responsible for retaining independent auditors and reviewing results of the audit. At larger charities (over $1 million in annual revenue), the board or audit committee will be required to follow additional oversight procedures.

– Preventing conflicts of interest by requiring that transactions between a nonprofit and insiders who stand to benefit be fully disclosed and that nonprofit boards determine they are fair, reasonable, and in organizations’ best interests. When a charity engages in a substantial transaction with an insider, the board will have to consider alternatives and document its basis for choosing the insider transaction.

– Strengthening the Attorney General’s power to police fraud and abuse by granting clear power to bring judicial proceedings to unwind interested-party transactions.

– Ensuring board independence by prohibiting any employee of a nonprofit from also serving as chair of its board.

– Promoting good governance by requiring all nonprofits to adopt conflict of interest policies and those with over $1 million in annual revenue and 20 or more employees to adopt whistleblower policies.

According to ACT the bill also reduces unnecessary and outdated burdens on nonprofits by:

– Streamlining procedures for nonprofit mergers, property sales and corporate dissolutions, so that funds needed for ongoing charitable programs are not wasted on unnecessary red tape.

– Modernizing laws to allow nonprofits to conduct their affairs more efficiently, such as permitting nonprofits to use email and video technology for meetings and allowing boards to delegate the approval of small transactions to committees.

– Eliminating unnecessary and costly requirements for nonprofits forming in New York, saving nonprofits money and time and allowing them to commence charitable programs more quickly.